[Federal Register Volume 63, Number 41 (Tuesday, March 3, 1998)]
[Rules and Regulations]
[Pages 10293-10295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4891]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 357

RIN 3064-AB08


Determination of Economically Depressed Regions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: As part of the FDIC's systematic review of its regulations 
under section 303(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI Act), the FDIC is amending its 
regulations to reflect changes in the marketplace, update and 
streamline the regulation, improve efficiency, and reduce unnecessary 
costs. The text of this final rule is substantially similar to that of 
the proposed rule that was published in the Federal Register of August 
6, 1996. Previous references to specific sources of data to be used in 
determining whether a region is economically depressed were removed in 
order to allow for more flexibility in our analyses. In addition, the 
general designation of states as the geographical unit over which the 
FDIC defines ``economically depressed regions'' has been changed under 
this amendment. Under this amendment, the FDIC will define the 
geographic unit that comprises an ``economically depressed region'' for 
an institution on a case-by-case basis. Such a determination is 
required because the geographic area over which institutions conduct 
business varies across institutions, as well as over time for an 
individual institution. After an institution's geographic market has 
been defined the FDIC will next determine whether that market falls 
within an ``economically depressed region''. This allows for cases 
where an institution's geographic market is limited to some portion of 
a state or crosses two or more state boundaries. The FDIC also will 
consider relevant information from institutions regarding their 
geographic market, as well as information on whether that market is 
``economically depressed''. Elsewhere in this issue of the Federal 
Register, the FDIC also is withdrawing a 1992 proposed amendment to the 
regulation that was published on December 18, 1992.
    The FDIC is required by statute to consider proposals for direct 
financial assistance by Savings Association Insurance Fund (SAIF) 
members having offices located in an ``economically depressed region'' 
as determined by the FDIC by regulation and meeting certain other 
specified criteria, before grounds exist for the appointment of a 
conservator or receiver for the institution. This amendment provides 
guidance to enable applicants to evaluate their situations before 
formally applying for assistance. Rather than periodically designating 
specific ``economically depressed regions'' in light of current 
economic conditions, this rule provides the criteria that the FDIC will 
use to determine which regions are economically depressed.

EFFECTIVE DATE: April 2, 1998.

FOR FURTHER INFORMATION CONTACT: John P. O'Keefe, Chief, Economic 
Analysis Section, (202) 898-3945, David Horne, Financial Economist, 
(202) 898-3981, Division of Research and Statistics; Michael Phillips, 
Counsel, Legal Division, (202) 898-3581, FDIC, 550 17th Street, N.W., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review 
of its regulations and written policies in accordance with section 
303(a) of the CDRI Act, 12 U.S.C. 4803(a). Section 303(a) requires each 
federal banking agency to streamline and modify its regulations and 
written policies in order to improve efficiency, reduce unnecessary 
costs, and eliminate unwarranted constraints on credit availability. 
Section 303(a) also requires each federal banking agency to remove 
inconsistencies and outmoded and duplicative requirements from its 
regulations and written policies.
    As part of this review, the FDIC has determined that its 
regulations at 12 CFR part 357 should be amended to minimize the cost 
of implementing the regulation, make it more flexible regarding market 
standards, and give institutions more opportunity to establish that 
they are located in an ``economically depressed region''.
    In the Federal Register of August 6, 1996 (61 FR 40756), the FDIC 
issued a proposed amendment of part 357 to provide criteria to enable 
applicants to evaluate their status before formally

[[Page 10294]]

applying for assistance under sections 13(c) and 13(k)(5) of the 
Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1823(c) and 12 
U.S.C. 1823(k)(5). Rather than designating specific regions in light of 
current economic conditions, the proposed rule provided the criteria 
that it will use to determine which regions are ``economically 
depressed''. The FDIC also proposed to withdraw a proposed amendment to 
part 357 that updated the list of designated states that was published 
on December 18, 1992 (57 FR 60140), but never adopted. No public 
comments were received with respect to the 1992 and 1996 proposed 
rules. Elsewhere in this issue of the Federal Register, the FDIC is 
withdrawing the 1992 proposed rule.
    Subject to the statutory prohibition in section 11(a)(4) of the FDI 
Act (12 U.S.C. 1821(a)(4)), the FDIC has authority under section 13(c) 
of the FDI Act, 12 U.S.C. 1823(c), to provide financial assistance to 
prevent the default of an insured depository institution. Under section 
13(k)(5) of the FDI Act, 12 U.S.C. 1823(k)(5), the FDIC must consider 
proposals for eligible SAIF member institutions to receive assistance 
pursuant to section 13(c) before grounds exist for the appointment of a 
conservator or receiver for the institution. Section 13(k)(5) 
establishes nine criteria for such eligibility. One of the criteria is 
that an institution's offices must be located in an ``economically 
depressed region'' (12 U.S.C. 1823(k)(5)(A)((ii)(VI)). In addition, 
under section 13(k)(5), SAIF-member applicants must separately meet the 
criteria under section 13(c) and other pertinent sections of the FDI 
Act to qualify for assistance. In evaluating assistance proposals filed 
under section 13(c), the statutory prohibition in section 11(a)(4) of 
the FDI Act, 12 U.S.C. 1821(a)(4), must be complied with. With certain 
limited exceptions, section 11(a)(4) prohibits the use of funds from 
the Bank Insurance Fund or the SAIF to benefit shareholders of a failed 
or failing insured depository institution.
    The term ``economically depressed region'' is defined in section 
13(k)(5)(C) to mean ``any geographical region which the [FDIC] 
determines by regulation to be a region within which real estate values 
have suffered serious decline due to severe economic conditions, such 
as a decline in energy or agricultural values or prices''.
    On September 17, 1990, the FDIC promulgated regulations at 12 CFR 
357.1 (55 FR 38043), which determined that certain geographical regions 
were ``economically depressed regions'' for purposes of section 
13(k)(5) of the FDI Act. In determining which regions were 
``economically depressed'', the FDIC considered the following factors: 
(1) The ratio of poor quality real estate assets to total assets in the 
portfolios of Bank Insurance Fund (BIF) members; (2) the ratio of poor 
quality real estate assets to total assets in the portfolios of SAIF 
members; and (3) unemployment figures. The statewide percentages of 
impaired real estate assets for BIF and SAIF members and unemployment 
rates were analyzed with reference to national levels. These factors 
are subject to periodic review and application by the FDIC in light of 
changing economic conditions.
    As promulgated in 1990, the FDIC's regulations at 12 CFR 357.1 
designated eight individual states as ``economically depressed 
regions'' for purposes of section 13(k)(5) of the FDI Act. They were: 
Alaska, Arizona, Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, 
and Texas.
    Two years later, having reexamined real estate and employment 
conditions based on the most recent information, the FDIC determined 
that the eight states previously designated as economically depressed 
regions should no longer receive that designation. The FDIC concluded 
that the following nine states and the District of Columbia should be 
classified as economically depressed regions: California, Connecticut, 
Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode 
Island, and Vermont. In December 1992, the FDIC published this list of 
states in a proposed rule (see 57 FR 60140, December 18, 1992). The 
FDIC had considered, as before, the ratio of poor quality real estate 
assets to total assets in the portfolios of BIF and SAIF members, and 
the labor market situation. In addition, the FDIC considered both the 
overall unemployment rate and non-farm employment growth trends. The 
December 1992 proposed rule was never adopted.
    Rather than periodically revisiting the criteria used to identify 
regions for designation as ``economically depressed regions'', and 
listing regions so designated, the FDIC has determined that this 
amendment of part 357 will provide more coherent guidance to applicants 
for the evaluation of their situations before formally applying for 
assistance. This final rule provides the criteria the FDIC will use to 
determine which regions are ``economically depressed'' for purposes of 
section 13(k)(5)(C). References to specific sources of data to be used 
in the determination of whether a region is economically depressed, 
which were contained in appendix A of the proposed amendment, were 
removed in order to allow for greater flexibility in the FDIC's 
analysis. In addition, the general designation of states as the 
geographical unit over which the FDIC defines ``economically depressed 
regions'' has been changed under this amendment to part 357. Under this 
amendment to part 357, the FDIC will define the geographic unit that 
comprises an ``economically depressed region'' for an institution on a 
case-by-case basis. Such a determination is required because the 
geographic area over which institutions conduct business varies across 
institutions, as well as over time for an individual institution. After 
an institution's geographic market has been defined the FDIC will next 
determine whether that market falls within an ``economically depressed 
region''. This allows for cases where an institution's geographic 
market is limited to some portion of a state or crosses two or more 
state boundaries. The FDIC will also consider relevant information from 
institutions regarding their geographic market, as well as information 
on whether that market is ``economically depressed''. As a result of 
the adoption of the rule, the FDIC will no longer need to amend part 
357 in order to periodically designate specific regions in light of 
current economic conditions.
    Under the final rule, for the purpose of determining ``economically 
depressed regions'', the FDIC will determine whether an institution 
qualifies as being located in an ``economically depressed region'' on a 
case-by-case basis. That determination will be based on four criteria: 
(1) High unemployment rates; (2) declines in non-farm employment; (3) 
high levels of problem real estate assets at insured depository 
institutions; and (4) evidence indicating declining real estate values. 
The FDIC will also consider relevant information from institutions 
regarding their geographic market area, as well as information on 
whether that market is ``economically depressed''.

Regulatory Flexibility Act

    Under section 605(b) of the Regulatory Flexibility Act (RFA), 5 
U.S.C. 605(b), the regulatory flexibility analysis otherwise required 
under section 604 of the RFA (5 U.S.C. 604) is not required if the head 
of the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities and the 
agency publishes such certification and a statement providing the 
factual basis for such certification in the Federal Register along with 
the final rule.

[[Page 10295]]

    Pursuant to section 605(b) of the RFA, the FDIC certifies that this 
final rule will not have a significant economic impact on a substantial 
number of small entities. The rule replaces the current list of states 
that were determined in 1990 to constitute ``economically depressed 
regions'' for purposes of section 13(k)(5) of the FDI Act with the 
criteria that the FDIC will use in reaching such determinations 
concerning such in the future. The rule involves one of nine criteria 
in section 13(k)(5) of the FDI Act that must be considered along with 
various requirements in sections 13(c) and the prohibition in 11(a)(4) 
of the FDI Act, for purposes of applications from insured depository 
institutions for financial assistance. The rule will at most effect a 
very small number of institutions.

Paperwork Reduction Act

    In accordance with section 3506 of the Paperwork Reduction Act of 
1995 (44 U.S.C. 3506; see also 5 CFR part 1320 appendix a.1), the FDIC 
has reviewed the final rule and has determined that no collections of 
information pursuant to the Paperwork Reduction Act are contained in 
this rule. Accordingly, no information has been submitted to the Office 
of Management and Budget for review.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 (the 
1996 Act), Pub. L. 104-121, 110 Stat. 857, provides generally for 
agencies to report rules to Congress and for Congress to review the 
rules. The reporting requirement is triggered in instances where the 
agency in question issues a final rule as defined in the Administrative 
Procedure Act at 5 U.S.C. 551. The agency will file the appropriate 
reports pursuant to the 1996 Act concerning any final rule.
    The Office of Management and Budget has determined that this final 
rule does not constitute a ``major'' rule as defined by the 1996 Act.

List of Subjects in 12 CFR Part 357

    Bank deposit insurance, Grant programs--housing and community 
development, Savings associations.

    For the reasons set forth in the preamble, the FDIC hereby amends 
12 CFR part 357 as set forth below.

PART 357--DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS

    1. The authority citation for part 357 is revised to read as 
follows:

    Authority: 12 U.S.C. 1819, 1823(k)(5).

    2. Section 357.1 is amended by revising paragraph (b) to read as 
follows:


Sec. 357.1  Economically depressed regions.

* * * * *
    (b) Economically depressed regions. (1) For the purpose of 
determining ``economically depressed regions'', the FDIC will determine 
whether an institution qualifies as being located in an ``economically 
depressed region'' on a case-by-case basis. That determination will be 
based on four criteria:
    (i) High unemployment rates;
    (ii) Significant declines in non-farm employment;
    (iii) High delinquency rates of real estate assets at insured 
depository institutions; and
    (iv) Evidence indicating declining real estate values.
    (2) In addition, the FDIC will also consider relevant information 
from institutions regarding their geographic market area, as well as 
information on whether that market is ``economically depressed''.

    By order of the Board of Directors.

    Dated at Washington, D.C., this tenth day of February 1998.

Federal Deposit Insurance Corporation
Robert E. Feldman,
Executive Secretary.
[FR Doc. 98-4891 Filed 3-2-98; 8:45 am]
BILLING CODE 6714-01-P